MDY AND IWM CHALLENGE THEIR FEBRUARY HIGHS -- ALL FOUR OFFENSIVE SECTORS HIT NEW HIGHS FOR 2013 -- XLK GAPS AND BREAKS ABOVE FEBRUARY HIGHS -- AD LINES HIT NEW HIGHS TO CONFIRM UNDERLYING STRENGTH
MDY AND IWM CHALLENGE THEIR FEBRUARY HIGHS... Link for todays video. Despite signs of waning upside momentum, the Russell 2000 ETF (IWM) and S&P Midcap SPDR (MDY) held support and surged back to their February highs. Chart 1 shows IWM bouncing off the 89 area with a six day surge back above 92. Even though the S&P 500 ETF and Dow Industrials SPDR exceeded their February highs, IWM has yet to exceed its February highs and shows a little relative weakness, not much though. More importantly, medium-term support held and the February low still holds the key.
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Chart 1
As noted on Monday, the indicator window shows 20-day Aroon (Down) crossing above Aroon (Up) for the first time since late November. A bearish signal triggers when Aroon (Down) crosses Aroon (Up), Aroon (Down) exceeds 50 and Aroon (Down) hits 100. Two of the three criteria were met, but Aroon (Down) has yet to hit 100 to complete the signal. Also note that this indicator is based on 20 days, which is shown by the blue square. The current readings for 20-day Aroon are based on price data back to February 6th. Keep this in mind when setting the look-back period for indictors. A 14-day Stochastic Oscillator uses 14 days of price action. At this point, Aroon is still flashing a warning, but this warning has yet to be confirmed on the actual price chart because support held. Indicators, including volume, are secondary to price action. You can read more on Aroon in our ChartSchool. Chart 2 shows MDY forming an indecisive candlestick near resistance.
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Chart 2
ALL FOUR OFFENSIVE SECTORS HIT NEW HIGHS FOR 2013... Even though the three defensive sectors are performing well and trading at or near 52-week highs, the offensive sectors are certainly not slouching with new highs of their own. The consumer staples, utilities and healthcare sectors make up the defensive sectors. The consumer discretionary, finance, industrials and technology sectors represent the offensive sectors. All four of these sectors moved above their February highs this week. Even though they may be short-term overbought and still ripe for a correction, the overall trends are clearly up and their performance is positive for the broader market. Chart 3 shows the Consumer Discretionary SPDR (XLY) surging some 5% the last five days and hitting a new 52-week high. It may be short-term overbought, but the medium-term trend is clearly up with the February lows marking a support zone in the 49.50 area. The indicator window shows RSI bouncing off the 40-50 zone in late February. Chart 4 shows the Finance SPDR (XLF) surging above 18 and RSI bouncing off the 40-50 zone. Chart 5 shows the Industrials SPDR (XLI) with similar characteristics.
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Chart 3
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Chart 4
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Chart 5
XLK GAPS AND BREAKS ABOVE FEBRUARY HIGHS... Chart 6 shows the Technology SPDR (XLK) extending its uptrend with a gap and move above the February highs. XLK is the only one of the four that did not reach a 52-week high this week. However, the ETF did hit a new high for 2013 and showed some good lift with the surge above 30. At this stage, Tuesday's gap holds the first key. A strong gap will hold and a weak gap will fold. A move back below 29.75 would be negative, but it would not reverse the medium-term uptrend, which has been in place since mid November. The February lows mark a clear support zone in the 29.25 area. A break below this level is needed to reverse this uptrend. Also notice that RSI has held the 40-50 zone since early December. Even though XLK momentum is clearly not as strong that seen in the other offensive sectors, it is not bearish. So there you have it. The February lows mark medium-term support for all four offensive sectors and RSI support is set at 40. A broader market correction will not materialize until at least two of the four break down.
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Chart 6
AD LINES HIT NEW HIGHS TO CONFIRM UNDERLYING STRENGTH... With the February dip and subsequent rebound over the last two weeks, medium-term support levels formed in the AD Lines and AD Volume Lines for the Nasdaq and the NYSE. These support levels now hold the key to the medium-term uptrend. Breadth is important because it tracks the degree of participation. Uptrends and new highs in the AD Lines and AD Volume Lines reflect widespread participation in the current advance, which is bullish overall. Also note that we have yet to see any bearish divergences form. Significant market tops are often, but not always, preceded by bearish divergences in the AD Line or AD Volume Line. Keep in mind that you can click these charts to see the settings and save them to your favorites list.
Chart 7 shows the NYSE AD Line moving to a new 52-week high this week. The trend is clearly up with the November trend line marking first support and the late February low marking key support. The indicator window shows MACD of the AD Line turning positive in late November and remaining positive. AD Line momentum is bullish when positive and bearish when negative. I am not concerned with divergences, simply crosses above/below the zero line. There is no sense turning bearish on the AD Line or the NY Composite as long as AD Line momentum is bullish. Chart 8 shows the Nasdaq AD Line hitting a new high for the move and AD Line MACD in positive territory.
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Chart 7
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Chart 8
AD VOLUME LINE MOMENTUM REMAINS POSITIVE... The AD Line is a cumulative measure of net advances (advancing issues less declining issues). As such, the AD Lines reflect the performance of small-caps and mid-caps because there are many more small-cap and mid-cap stocks in the market. An advance counts as +1 and a decline counts as -1, regardless of market cap. The AD Volume Line is a cumulative measure of net advancing volume (volume of advancing issues less volume of declining issues). The AD Volume Lines, in contrast, reflect the performance of large-caps because these stocks dominate the most active lists.
Chart 9 shows the NYSE AD Volume Line breaking out in early December and moving higher in a clear uptrend. This large-cap indicator hit a new high as well and confirms underlying strength in the market. The February low marks key support. Note that MACD for the AD Volume Line is also positive. AD Volume Line momentum is clearly bullish as long as this indicator holds above the zero line. Chart 10 shows the Nasdaq AD Volume Line with similar characteristics.
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Chart 9
